Published 4:00 am, Wednesday, January 25, 2006

Move over, Pluto. Mickey Mouse has some new friends: There's Woody. And Buzz Lightyear. And Mr. Incredible. And Steve Jobs.

Ending months of speculation, the Walt Disney Co. said Tuesday it will buy Emeryville-based Pixar, creator of such hits as "Toy Story" and "Finding Nemo," for $7.4 billion in an all-stock deal.

The agreement means that Disney, which pioneered the animation industry with beloved characters such as Mickey Mouse and his dog, Pluto, only to be left behind in recent years with the advent of computer animation, could have a chance to reclaim its dominance with Pixar at its side.

Pixar "has fostered some of the most innovative and successful films in history," Disney CEO Robert Iger said in a statement. "The addition of Pixar significantly enhances Disney animation."

In the age of high-tech filmmaking, Disney also picks up the technical expertise of Jobs, who is also the head of Apple, the Cupertino-based maker of the wildly popular iPod digital music player.

Related Stories

For most of its existence, Pixar had teamed up with Disney under an exclusive cost-and-revenue-sharing deal that would have ended this summer with the release of "Cars."

Instead, now joined, they plan to take advantage of Pixar's unbroken chain of movie hits, in part by making sequels to Pixar's films and incorporating more of Pixar's characters and stories into Disney theme parks.

"After a lot of soul-searching, we came to the conclusion that this looked to be the most exciting path for Pixar's future," Jobs said on a conference call Tuesday.

To some observers, the marriage has been coming for a long time yet almost didn't happen. Last year, talks between Jobs and then-Disney CEO Michael Eisner grew tense and broke off, and Pixar made the rounds with other Hollywood moguls. But after Eisner's ouster and Iger's appointment several months ago, the relationship between the "Mouse House" and Pixar was smoothed over.

In a dramatic gesture last fall, Disney agreed to sell episodes of some of its most popular television shows, including "Lost," "Desperate Housewives" and tween favorite "That's So Raven" on Apple's iTunes store. The partnership helped introduce Apple's new video iPod before the holidays.

There could be more deals like that in the future.

"For a great animated film, your child may watch it dozens of times or even 100 times," Jobs said. "The opportunity for films on television and other types of devices is huge."

Under the agreement, worked out over the weekend and on Monday, Disney will issue 2.3 shares for each Pixar share in a deal that is expected to wrap up by this summer. Pixar will continue to operate in Emeryville and Disney in its existing locations, the companies said.

Pixar President Ed Catmull will become president of the new Pixar and Disney animation studios. John Lasseter, a Disney alumnus who is credited with being the driving force behind Pixar's blockbusters, will become chief creative officer of the animation studios. Lasseter also will be the principal creative adviser at Walt Disney Imagineering, where he will have input in designing attractions for Disney theme parks.

Disney calculated it will start to make money from the acquisition by 2008. Pixar's most recent film, "The Incredibles," for instance, raked in $628 million worldwide -- including domestic ticket sales of $261 million -- not to mention millions more in DVD and merchandise sales. In a research note, William Drewry, an analyst with Credit Suisse, estimated that Pixar could generate for Disney an additional $1 billion to $2 billion of profit over five to six years through sequels.

That's assuming, of course, that the merger of the two companies goes well.

Pixar, in many ways, is worlds apart from Disney. It has thrived on its quirky independence, not to mention its distance from Hollywood. And unlike some studios, Pixar has taken its time to develop its films, spending a year or more on each one.

"There are so many things that could go wrong," said Dennis McAlpine, an independent research analyst. "A lot of (Pixar employees) don't want to be under the control of Disney."

Iger said he intends to keep Pixar's "unique culture" intact. "It is such an important ingredient to the success of making these movies," he said. "We (Iger and Jobs) spent a lot of time talking about that in negotiating this deal. I'm committed to seeing that Pixar is allowed to exist."

The Disney and Pixar studios probably will produce one film apiece once a year, Disney said. Besides "Cars" -- which Iger, who saw a preview, called "sensational" -- Pixar already is working on another feature film about a mouse in Paris. Disney, whose recent animated films such as "Treasure Planet" have either flopped or had only moderate success, also has a number of animated films in production, which now stand to benefit from Pixar's influence.

The Pixar acquisition "will re-energize Disney's creative juices and maybe help the company as a whole reassert its strengths on the creative side," said Todd Chanko, a Jupiter Research analyst.

It could be an opportune time for the two to join forces. The animation industry has become increasingly competitive because of rivals such as DreamWorks and its smash hit "Shrek."

"The technology for creating animated films has come down to fairly simplistic levels, so a lot of people can make animated films," McAlpine said. "The trick is to make animated films people want to see. Disney has shown you can make animated films that nobody wants."

Investors appeared to cheer the deal. In anticipation of the news, shares of Disney climbed 1.84 percent, or 47 cents, to $25.99 per share Tuesday. Pixar's shares, which have increased about 30 percent since October, amid speculation of a deal, dipped 1.44 percent to $57.57. Disney also said it is repurchasing about 225 million additional shares to help improve the value of its stock.

The players: Pixar CEO Steve Jobs takes a seat on Disney's board. Disney CEO Robert Iger solidifies Disney's future. Pixar President Ed Catmull will become president of the new Pixar and Disney animation studios. Pixar Executive Vice President John Lasseter will become chief creative officer of the animation studios and principal creative adviser at Walt Disney Imagineering.